Within a month of the new tax regime coming into effect, crypto trading volumes in India have seen a massive downturn. The imposition of a 30 percent tax on capital gains coupled with a 1 percent TDS on all transactions has added immense pressure to India's already vexed crypto industry.
Also, the debacle involving Coinbase and the National Payments Corporation of India (NPCI) has further fogged the regulatory situation. Banks and payment aggregators are now unwilling to associate with crypto exchanges following this development.
Faced with this regulatory blur and the stringent tax rules, several Indian crypto firms are now looking for friendlier locations to move base. It has kicked off a mass migration of Web 3,0 and DeFi firms to countries like Dubai, where the laws are pro-crypto and less hostile. In fact, Dubai aims to position itself as a crypto hub in the Middle East region.
The Indian legislation on cryptocurrencies was long anticipated. Despite the RBI's concerns surrounding cryptocurrencies, which it repeatedly vocalised, some investors remained optimistic about a favourable regime due to the sheer size of the Indian crypto market. However, since the Union Budget 2022 was announced, most firms and investors have redirected their attention to more crypto-welcoming countries.
MoneyControl attended Web 3.0 events held in Dubai in March 2022 and reported a stark change among the attendees. They observed majorly Indian businesspeople thronging the Binance Week & ETHDubai events. "75 percent of the attendees were Indians. The others included Russians and Europeans," said Santhosh Panda, founder of Foundership, a mentorship and capital investment firm for Web 3.0 projects, to MoneyControl.
Like Web 2.0 companies (e-commerce players and cab-hailing services) once registered in Singapore for their business-friendly governance, current web 3.0 start-ups are registering themselves in Dubai. The reason remains the same. Other crypto-friendly locations include Estonia, Singapore, and the British Virgin Islands, MoneyControl reported.
"Unfair tax policies in India are making people consider alternative countries like UAE for their new projects. On the other side, people are more likely to consider working for foreign countries to avoid tax confusion. India needs to fix up their taxation laws for the crypto industry," said Sathvik Vishwanath, CEO of Indian crypto exchange Unocoin in a conversation with Cointelegraph.
Polygon founder Sandeep Nailwal already migrated to Dubai 2 years ago to capitalise on the ease of doing crypto business. "The brain drain is absolutely crazy," he said to The Print in a March 2022 interview from Dubai. "I want to live in India and promote the Web3 ecosystem. But, overall, the way the regulatory uncertainty is there and how big Polygon has become, it doesn't make sense for us or for any team to expose their protocols to local risks," he added.
Even Nischal Shetty and Siddharth Menon, the co-founders of WazirX, India's largest crypto exchange by volume, have reportedly relocated to Dubai. Shetty and Menon are the CEO and COO of WazirX, respectively. It is worth noting that the exchange witnessed a trading volume nosedive of up to ~90 percent following the crypto legislation announcement.
"The challenges that crypto investors are facing today can lead to an array of disadvantages for the entire system. It can also lead to traders transacting on peer-to-peer exchanges instead of the Indian exchanges that are Know Your Customer compliant. It will also result in the government losing out on tax revenues. Under such unfavourable circumstances, we will see more and more start-ups in crypto and Web 3.0 move abroad. We must stop this brain drain by bringing in more conducive and concrete policies that will help us make it in India," said Shetty to Cointelegraph.
Interestingly, blockchain research and analysis firm Chainalysis reported that in October 2021, i.e., before the crypto regulations were announced, India's crypto adoption rate was second only to Vietnam's. Between July 2020 and June 2021, India registered a 641 percent jump in crypto transactions. Considering a 1.4 billion-strong population with tech-savvy youth and a still-developing financial system, India was perfectly poised to take the crypto world by storm.
